Don’t Get Bit By Hidden Taxes in Retirement

hidden taxes

Don’t Get Bit By Hidden Taxes in Retirement

Just about everyone hates taxes. They’re complicated and they often seem too high for moat taxpayers. Keeping track of the constantly changing laws and regulations can be unbearable for many, as well. So what about when you retire? Things will get a lot easier when you quit working, right? Not so fast. The fact is taxes in retirement might be even more complicated than while you’re working. For example,

• You may or may not be taxed on your Social Security benefits.
• Most withdrawals from a retirement plan come with federal income taxes, but state taxes depend on your location.
• Investment tax rates will also likely vary.

These are just a few of the things you will have to consider when you retire. So it’s best to be ready for them.

Social Security Taxes
How are Social Security taxes determined? It will depend on your combined income. Your combined income is determined by your adjusted gross income plus your non-taxable interest plus half of your Social Security benefit. Here’s how it plays out.

Single Filers
• If you have a combined income of less than $25,000 then you will not be taxed on your Social Security benefit.
• If your combined income is between $25,000 and $34,000 you could be taxed on as much as half of your SS benefits.
• If your combined income is more than $34,000 then as much as 85 percent of your SS benefits could be taxed.

Joint Filers
• Under $32,000 no tax• Between $32,000 and $44,000 up to 50 percent tax
• More than $44,000 up to 85 percent tax

To be clear you won’t lose this much of your benefit. The percentages are the amount of your benefit that will be taxed, at your regular income tax rate.

What About State Income Tax
There are 13 states that charge income tax on your social security benefits to a certain extent. There are seven states that don’t tax income, period. If you live in any of the other 30 states it will depend on several factors. Every state has different sales and property taxes, as well, so do your homework if you plan on moving in retirement.

Retirement Plan Distributions
For most retirement accounts the law requires you to start withdrawing money when you reach the age of 70½. These distributions are usually taxed at your normal tax rate. While this is not the case for everyone, for those who have saved a lot for retirement, even the minimum distribution could push them into a hire tax bracket. This could lead to an unexpected tax increase in retirement. For some, it might make sense to transfer some your IRA funds into a Roth IRA before you reach the age of 70.

Seek Help From the Pros
These are just a couple of the tax changes that can come with retirement that you should be aware of. As with any important tax decision, it’s always a good idea to meet with a tax professional and/or a financial planner to be sure you’re properly set up for the future. The fewer tax surprises you have in retirement the better.

For more updates follow GROCO on Facebook

Posted in
Dick Buxton; Lessons of Life | Dick Buxton

Lessons of Life | Dick Buxton

Episode Transcript of: Lessons of Life | Dick Buxton Alan Welcome back. I’m sitting here today with Dick Buxton. Vic has a prolific career playing a role in helping several 1000s or hundreds of 1000s of over 1000 companies with the succession planning with the Aesop’s and he’s also prolific writer and has done much…

Joe Lacob

Golden State Warriors Owner | Joe Lacob

  About Joe Lacob Lacob’s NBA and professional sports experience dates back over two decades, including a five-year tenure as a minority owner of the Boston Celtics, where he served on the basketball committee. He earned an NBA World Championship ring with the storied franchise before selling his minority stake and making an NBA record-setting…

Bill Evans; Young Entrepreneurs | Billy Evans

Young Entrepreneurs | Billy Evans

Young Entrepreneurs | Billy Evans As we continue to dive deeper into a changing world, young entrepreneurs are bringing ideas to the table to solve tomorrow’s problems. Listen as Alan discusses Billy Evan’s business plan and how this young man is staying ahead of the trend. Interview Transcript: Alan Welcome back. Well, we have here…

Ramesh Manian; Transitioning Industries as an Entrepreneur | Ramesh Manian

Transitioning Industries as an Entrepreneur | Ramesh Manian

Episode Transcript of: Transitioning Industries as an Entrepreneur | Ramesh Manian Alan Welcome back. I have here today with Ramesh Manian. And from the station cafe in San Carlos, Ramesh, you have an interesting background. I understand that you’re a mechanical engineer. And then you got a degree in software development. But how did you…